Medicaid’s 5 (Five) Year Look Back Rule

One of the most confusing and misunderstood topics in elder law is Medicaid’s 5 (Five) year look back rule. The following are five points that I hope will de-mystify this rule for you. (This discussion is based on the current (July 2015) Medicaid rules in Pennsylvania).

It’s a look back period from the date of a Medicaid application.

Despite its complexities, the look back rule has a simple purpose: require individuals seeking to apply for Medicaid assistance with long-term care costs to report any substantial transfers of assets in a chosen time period leading up to the application for benefits. The chosen time period is five years back from the date of a Medicaid application. For example, if an individual applies for Medicaid on 7/6/15, the five year period covers the dates from 7/6/10-7/6/15.

Substantial transfers of assets are those greater than $500 in a month, in the aggregate (meaning all gifts in the given month added together must be less than $500 to escape scrutiny). As you can see, this is quite a low threshold for reporting transfers.

Transfers or gifts made during the look back period are not an outright bar to Medicaid eligibility.

A point of confusion that I often hear is concern that a gift or transfer made during the five year look back period is an outright bar to receiving Medicaid. While there are consequences to making gifts or transfers during the look back period, doing so is not an outright bar to Medicaid eligibility.

Individuals who engage in gifting during the look back period are penalized.

As I mentioned previously, gifting during the look back period is not a complete bar to receiving Medicaid benefits. Instead, an individual who makes gifts during this period is penalized.

The penalty that an applicant must endure is a denial of Medicaid benefits for a period of time that roughly corresponds with the amount of days in the nursing home that the gifted asset(s) would have paid for. Expressed in terms of a formula, the amount of the gift is divided by the average cost of one day in the nursing home (also known as the penalty divisor). The result of performing this calculation is the number of days the applicant is ineligible for Medicaid long-term care benefits, or their “penalty period.”

For example, if John Doe made a non-exempt gift to his daughter, Jane Doe in the amount of $5,000 and needed to apply for Medicaid within the look back period, he would be ineligible for 17 days. The amount of the gift, $5,000 divided by the current (2015) statewide (Pennsylvania) average cost of one day in the nursing home, $293.15, equals 17 days.

It is vitally important to note that the penalty period does not begin to run until the applicant is “otherwise eligible” for Medicaid. This means that the penalty period will not begin until their available assets are depleted to the point where applicants are financially eligible for assistance; either $2,400 or $8,000, depending on their income.

The look back period does not bar individuals from making gifts.

The look back period is a Medicaid rule. The spirit of the rule is to prevent individuals from impoverishing themselves immediately before applying for Medicaid to cover long-term care expenses.

Because the reporting period is so long, it captures more than just individuals attempting to impoverish themselves to qualify for assistance. Consequently, many people are concerned about the propriety of gifting in their own various circumstances.

The truth is that every situation is different. The Medicaid rules do not bar gifting; they simply penalize individuals who make gifts in the five years leading up to an application for Medicaid.

In general, it is wise to understand the rules and consider your unique circumstances before engaging in gifting. An elder law attorney can both counsel you on the rules at play and on the wisdom of gifting (or not).

Transfers made outside of the look back period are not penalized.

The inverse of the rule that transfers made within the five year period immediately preceding a Medicaid application must be disclosed is that transfers made outside of that window do not. In simple terms, a gift made six years prior to applying for Medicaid would not be reported on the Medicaid application and therefore the applicant would suffer no penalty for this activity.

Engaging in gifting more than five years before applying for Medicaid can be an effective strategy for protecting assets from nursing home costs by lowering the amount of available assets an individual will have at the time an application is completed. It is extremely important to consult a lawyer if you are considering making such gifts. Good advice at this juncture can be invaluable later.